Bank – Business loan application
Operating lines of credit and letters of credit
You probably ask yourself what a series on business banking essentials is done on a site of natural health.
Well, the stress caused by financial worries will eventually damage your health. Many business owners operate under constant financial pressure, and this series on commercial banks and commercial finance arm goes with the knowledge they need to cope with confidence with the various situations, and with their bank managers . Knowledge is comforting, is the fear of the unknown which is stressful.
How can I help you? I got my Chartered Accountant designation (I am retired now), in Australia. Upon his arrival in Canada, I worked for a wholly-owned Canadian subsidiary of an American bank. Over time, I have risen to become the first vice-president responsible for the commercial finance division. This division granted flexible credit lines operating, which includes letters of credit to importers. In this career, I met many different types of businesses, including trading, manufacturing and import.
It is not intended to be a course in accounting or banking. I have attended most of the information you need in order to give you the best chance of success in your business. I will tell you what your bank manager would like to hear from you, to your meetings. I will tell you the first signs that your company requires affirmative action.
These comments are not retail activities, they apply to wholesalers, importers and manufacturers.
To cover the vast amount of bank information, even in thumbnail format, I will break into different segments. Some apply to your business, and others do not. I am intentionally phrasing segments very simple in terms accessible. I advise you to talk with my advice, your accountant, your banker or even before you decide to act accordingly.
The first part deals with the first loan application. It is assumed that you are applying for an operating line of credit, which may or may not include letters of credit. The loan from the reality in the credit line fluctuates at different times, depending on cash flow, but the bank will put a ceiling that you can not overcome without special permission. The limit on the operating line of credit is determined by the bank after evaluating different aspects of your business, including your equity in it.
There are certain basic information that the financial institution needs to make the decision to fund your business. You must come to an appointment with the bank armed with this information, possibly accompanied by your accountant who prepared the information package.
“The financial statements for the past three years
“Pro forma financial statements for the year so far
“Projected cash flow for the current year
“List of aged accounts receivable
“List of accounts payable aged
“Summary of the inventory
From these documents, the bank to check whether your business is profitable in the past, and whether it appears to be profitable this year.
The high cash flow forecasts show how the financial contribution will peak at, and how the loan is secured at all times.
The list of accounts receivable disclose the quality of customer and whether a large percentage of them is the offender.
The list of accounts payable reveal if your company is current in its payments to suppliers.
The brief inventory shows the nature of the inventory and to give an indication of whether they can be readily sold.
In addition to discussing the above documents in detail, know that a credit check will be done on the business community to determine if there is litigation pending, and about its solvency.
Knowing all this, make sure you have satisfactory explanations for all aspects that might seem detrimental to the bank.
It is important to keep in mind that the ideal client for an operating line of credit, to the extent that the bank is at stake is someone who:
“The credit needs to fund profitable growth
“Does not require too high a loan / equity
“At appropriate safeguards to cover the loan at any time
“At collateral that can be easily liquidated
“At excellent credit rating
Your strategy? When applying for the loan:
“Insisting on the right value of the assets that support equity of the company.
“So much so that inventory is under way, or can be easily sold.
“Explain that your accounts receivable are updated and that offenders claims were planned.
“If you have unencumbered assets, emphasize that there are additional safeguards for the bank in them.
“Counsel to the bank that you have adequate fire insurance to protect property and life insurance that could be used to protect the bank, if necessary.
“Recognize that the bank looks to the guarantee to repay the loan if the company goes bankrupt. Banker is not really interested in intangibles such as goodwill, even if they can be quite valuable.
The simple technique to open the LC
1. Make sales contract with suplier
2. Come to Bank, and ask them to open the LC
3. Wait the shipment from the suplier.